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Chapter 30
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Intangible Assets (lAS 38)
337
$4,000
9.S If the revaluation model is used , at the date of the revaluation, accumul ated amortization and
impairment losses are either eliminated against the cost and then the net amount is uplifted to the
revalued amount or are restated proporti onately to the restatement of the gross ca rry ing amount
such that the net amount is equal to the fair value.
Case Study 4
Active Asset Inc. owns a freely transferable taxi operator's license, which it acquired on January I,
20XI, at an initial cost of $10,000. The useful life of the license is five years (based on the date it is
valid for). The entity uses the straight-line method to amortize the intangible.
Such licenses are frequently traded either between existing operators or with aspiring operators. At the
balance sheet date, on December 31, 20X2, due to a government-permitted increase in fixed taxi fares,
the traded values of such a license was $12,000. The accumulated amortization on December 31, 20X2,
amounted
to
$4,000.
Required
What journal entries are required at December 31, 20X2, to reflect the increase/decrease in carrying
value (cost or revalued amount less accumulated depreciation) on the revaluation of the operating license
based on the traded values of similar license? Also, what would be the resultant carrying value of the
intangible asset after the revaluation?
Solution
The journal entries to be recorded in the books of account are
Dr Intangible asset-accumulated amortization
$4,000
Cr Intangible asset-eost
(Being elimination of accumulated depreciation against the cost ofthe asset)
Dr Intangible asset-eost
Cr Revaluation reserve
(Being uplift ofnet book value
to
revalu ed amOll1lt)
$6,000
$6,000
The net result is that the asset has a
revised
carrying amount of $12,000 ( $10,000 - $4,000
+
$6,000).
9.6 A revaluati on increase is to be classified as a part of equity unl ess it reverses a previo usly
recogni zed imp airment loss, in which case it is credited to the income state me nt. If, in subseque nt
years, revaluation decreases
on the
same
asse t
occ ur, such decreases may be dedu cted from the
revaluati on reserve app licable to that asset. Oth erwise the reduction is to be charged against profit.
9.7 Any revaluation reserve in respect of a particular intangible ass et is transferred to retained
ea rnings when it is real ized . Thi s cou ld be on disposal , although it is permitted to treat the add i–
tional amorti zation resulting from the rev aluation as a rea lization of that surplus and tran sfer thi s
amount from revaluation reserve to ret ained earnings. Under
no circums tances
can the revaluation
reserve, or part thereof, be credited to the income statement.
10. USEFUL LIFE
10.1
The usefu l life of an intangible asset must be assessed on recognition as either indefinite or
finite . If the assessment determines the life to be finite, then the length of life or numbe r of units to
be prod uced must be determined also. An indefini te useful life may be determined when there is no
foreseeab le limit to the period over whic h the entity will conti nue to receive economic benefit from
the asset. All relevant factors must be considered in this assessment and may inclu de
• Expe cted usage by the entity and whether it cou ld be used by new management teams
• Product life cycles
• Rates of technical or commercial change
• Industry stability
• Likely actions by compe titors
• Legal restri ction s
• Whether the useful life is dependent on the useful lives of other assets